Caring for Elderly Parents’ Estates and Finances

It’s important that you have conversations with your parents and siblings about the plans that your parents have made for their estate after they pass away or should they become too ill to continue to handle their finances. Ideally this is a conversation that your parents initiate and it will take place when your parents are still healthy and in good mental capacity.Caring for Elderly Parents' Estate and Finances

If you’re concerned that your parents haven’t yet discussed their financial plans with you or your siblings, then you may want to raise your concerns with them. Individuals who are open with their family about their plans have the opportunity while they are still alive to diffuse future problems that may occur after their death.  Learn more about caring for your elderly parents’ estate and finances.

Essential Conversations to Have with Your Parents About Estate and Finances

Some of the most common problems that occur if you do not discuss your parents’ estate and finances can include:

  • Not having a will
  • Not having a power of attorney
  • Being unable to access funds from the estate to pay for essential expenses (like funeral costs)
  • Paying unnecessarily high taxes and probate fees
  • Secrecy surrounding last wishes which can cause tension and emotional stress for remaining family members
  • Falling prey to financial abuse.

Although every person’s situation is unique, the following tips are designed to help families avoid some of these concerns:

1. Ensure Your Parents Have a Will and Power of Attorney

It is critical that you have a will which clearly outlines your parents’ last wishes and plans for an estate. If you don’t have a will then the government will determine what will happen to the estate, a process which could take a significant amount of time. While the government is determining the future of the property and belongings, assets will be frozen, which means your family will not be able to access them.

It is also a good idea to have a living will and power of attorney. A power of attorney as a “legal document that you sign to give one person, or more than one person, the authority to manage your money and property on your behalf.” Although this person is called an attorney they do not need to be a lawyer.

There are pros and cons to having a POA. If your parent falls ill and is unable to pay bills or manage financial affairs, a POA can step in to access funds for these purposes. It is critical that the POA is someone you trust to handle finances with accuracy and care.

2. Designate Beneficiaries for Assets

When you set up your parents’ accounts for Registered Retirement Saving Plans (RRSPs), Tax Free Savings Accounts (TFSAs) and insurance policies it’s important to ensure that there is a named beneficiary for each policy or account so the title change happens seamlessly.  “With a named beneficiary these accounts roll over very quickly,”  which means that if one spouse passes away the surviving spouse [or family] will be able to access the money in these accounts almost immediately.

If the beneficiary of these registered accounts is a spouse then they won’t need to pay taxes on the additional income. . However, if the beneficiary is a child or other family member then the additional income will be taxable, which in some cases can be a major taxable event.

What happens if you don’t have a beneficiary on these accounts? Without a beneficiary in place these registered assets will go into the estate and will be frozen until the estate is settled, which could take some time, Travers warns.

It is important to note that this seamless transition of assets to the beneficiary only takes place on registered funds. Unregistered mutual funds, stocks and bonds will become part of the estate upon death, which means that they can’t be accessed immediately.

3. Discuss Joint Bank Accounts

If you are helping your parents by paying their bills and managing their finances then you may wonder if you should become a joint account holder for their bank accounts. The answer, of course, depends on the situation and the comfort level that you have with your parent, but generally Travers advises against it. If there is no financial living will (POA) then a benefit to a joint bank account is that you would have the ability to access your parents funds quickly should they become incapacitated.

However, there are risks associated to a joint account including opening your parent’s finances up to your creditors and of course, the risk of financial abuse. Siblings or other family members may question how and why money is being spent. “Parents need to be mindful of what they may set their children up for,” Travers says. If you are paying your parent’s bills or they live with you their finances “could appear to be misappropriated,” warns Travers. “A better way is to have the POA in place to minimize the risk.”

4. Consider Gifts to Help Avoid Probate Fees

One way to avoid probate fees is for parents to give away excess assets as gifts while living. Most gifts are non-taxable, so parents who give children and grandchildren gifts while they are still alive avoid probate fees and taxes. Another benefit of gifting is that your parents will know that their assets arrived to the intended person. We’ve all heard stories of people challenging wills. Parents who gift valuable assets that are no longer needed like extra cash, jewelry, artwork and property know that these valuables won’t cause stress or dissension amongst family after they are gone.

Providing financial gifts like cash can often help family members out now who could use help with a mortgage or student debt. Not only does gifting avoid probate and tax fees it also allows the parent to witness the joy their gift has brought to their loved ones.

5. Discuss Joint Tenancy

Wondering what will happen to the family cottage that has been in your family for generations? Is it a good idea to have joint tenancy on the cottage before a parent passes away to avoid probate and taxes? As with a joint bank account the risk of opening the cottage up to creditors is a major con for adding children to joint tenancy of property. Many people are also concerned about their child’s spouse, what happens to the family cottage if there is a future divorce? In large families, how can parents ensure that the family cottage remains in the family and is still accessible to all?

Although joint tenancy may avoid having the cottage enter probate as part of the parent’s estate, it opens the property up to a lot of risk and in large families there may be a highly charged emotional element to consider as well. Also, depending on the asset the Canadian Revenue Agency (CRA) may deem that tax does need to be paid on the gift.

Paying Tax on Joint Tenancy is Up to the CRA

For instance, if a mother and son are both on the title of a property then the property would automatically go to the son upon the mother’s death, skipping probate altogether. In a small family this may make sense. However, Travers explains that the CRA could deem a transaction like adding someone to a deed as a taxable event, but this decision is at their discretion.

In the case of a mother and son, if the mother has an investment portfolio which she is living on and she adds the son as a joint account owner the government might not tax this because the son is not benefiting directly from the portfolio. However, if the mother owned a business and office building and put the son (who runs the business) on the deed as a joint tenant then the government may choose to tax the transaction because the son benefits directly from the gift.

6. Consider Complexities for Business Owners

If your parents own a business, then their estate and assets have extra complexities involved. Most business owners need professional help to ensure that their finances are in order and their business remains in the family upon their death.

7. Read the Fine Print

Travers says it’s important to carefully read all the detailed paperwork that you sign. Many people trust that their financial institution has filled out paperwork correctly on their behalf, and in most cases this is the case, “but 99% of us don’t look through these documents in detail, some of which are 20-30 pages in length,” Travers points out. “People sometimes make mistakes so it’s good to read through in detail and double check that everything is filled out correctly,” he advises.

8. Ensure Funeral Expenses are Covered

When a parent passes away there is not only a huge emotional stress, but for many families, also a large financial stress. “The main thing is making sure bills are paid and if everything is locked up in probate then a child without the financial means may have difficulty paying for bills and funeral expenses,” Travers says. However, he adds that based on demographics more elderly people have a whole life insurance policy (rather than term life insurance or no life insurance) which is usually intended to cover funeral expenses. You should know whether your parent has an insurance policy and where that policy is located should you need it.

It’s important that your parents take the time to look at their finances, will and power of attorney now. Putting financial plans off for another day is never a good idea because a sudden illness or death can happen anytime. Make sure your parents have plans in place and that you and your family are aware of their plans so that you can help protect them, their wishes as well as your own interests when the time comes to rely on you for help.

Reprinted from A Place for Mom.